furnishowma
New member
- Joined
- Aug 24, 2022
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- 2
The following table summarizes prices of various risk-free, zero-coupon bonds (expressed as a percentage of face value, per $100 face value):
Maturity (years)
1: $95.51
2: $91.05
3: $86.38
The YTM are as follows
1-year: 4.7%
2-year: 4.8%
3-year: 5%
Given this information, what’s the YTM of a three-year risk-free bond with 5% coupon rate and annual coupons?
For me, I assume that the coupon payment is $100. So since 5% is $100, 100% is $2,000 which is the face value of the bond.
So the price of the bond is $100/(1+4.7%) + $100/(1+4.8%)^2 + 2100/(1+5%)^3 which equals to $2000.62
Using trial and error to get the YTM of the bond, the YTM is 5%.
Is this the correct way of doing it? How would you do it?
Maturity (years)
1: $95.51
2: $91.05
3: $86.38
The YTM are as follows
1-year: 4.7%
2-year: 4.8%
3-year: 5%
Given this information, what’s the YTM of a three-year risk-free bond with 5% coupon rate and annual coupons?
For me, I assume that the coupon payment is $100. So since 5% is $100, 100% is $2,000 which is the face value of the bond.
So the price of the bond is $100/(1+4.7%) + $100/(1+4.8%)^2 + 2100/(1+5%)^3 which equals to $2000.62
Using trial and error to get the YTM of the bond, the YTM is 5%.
Is this the correct way of doing it? How would you do it?